In an interview with ProMarket, Jürgen Kühling, the chair of Germany’s Monopolies Commission, discusses the relationship between climate change and antitrust, what Germany’s reliance on Russian gas has to do with lax antitrust enforcement, and his skepticism toward the Digital Markets Act.
In the wake of Russian’s invasion of Ukraine, Germany has had to finally reckon with its longtime dependency on Russian gas. As the country is thinking about how to reduce its reliance on Russia and develop its own sustainable sources of energy, Jürgen Kühling, the chair of the German Monopolies Commission, notes that it all started with a merger that was approved when it shouldn’t have been.
In an interview with ProMarket, Kühling explained that the 2003 merger between E.on and Ruhrgas, the two gas giants that dominated the German gas sector, was at the root of Germany’s inability to develop more of its own LNG terminals and opened the door to its current dependence on Gazprom, to which it currently pays about €200 million a day. At the time, the Federal Cartel Office, which serves as Germany’s main antitrust agency, estimated that Ruhrgas’ market share was 58 percent and would be significantly strengthened by the merger. “We [at the Monopolies Commission] said we need LNG terminals, not because we anticipated what Putin will do one day, but because there is no competition if you rely on one energy source and one supplier,” said Kühling.
The Monopolies Commission is an independent expert body that advises the German government on competition issues (the Federal Cartel Office serves as Germany’s main antitrust agency). This week, the Commission released a report that for the first time addresses the question of how competition law ought to address climate change and sustainability. Earlier this year, ProMarket launched a series of articles that explored the relationship between antitrust and sustainability and whether sustainability and climate change-related considerations should be integrated into competition policy—questions that have already inspired a fierce debate among policymakers and practitioners in Europe, particularly since the European Green Deal was approved in 2020.
In his interview with ProMarket, Kühling—who is also a law professor at the University of Regensburg—discussed the relationship between antitrust and sustainability, explained why enforcers need to prevent companies from using climate change-related initiatives to accrue more market power, and voiced skepticism regarding the European Commission’s landmark Digital Market Act.
[The following conversation has been edited for length and clarity]
Q: You just published your biennial report. What are the main things you address?
One question that we address, for example, is how we can integrate concepts of sustainability into competition law. The new German government, as well as the European Commission, have emphasized that a sustainable economy is of much importance.
I do not know how much of a discussion it is in the US, but in Europe, various competition authorities referred to the problem of how to balance the protection of competition against sustainability aspects, e.g., in the assessment of cooperations among competitors or in merger control.
When the Federal Cartel Office blocks a merger in Germany, the merging parties can seek an exemption from the minister of economic affairs to clear the merger. And we had a case three years ago where companies argued that the merger would lead to sustainable efficiencies that would benefit the economy as a whole in such magnitude that the efficiencies would outweigh the merger’s adverse effect on competition completely. We had concluded that the alleged environmental public benefits were either not demonstrated or ultimately represented self-serving benefits. In general, we think such sustainable benefits that are in the consumers’ interest can already be addressed under the current competition law. All sustainability aspects that consumers do not value lie outside the scope of competition law, in our view, and require regulation.
Q: Is it greenwashing or market-power-washing? Are companies using “green” reasons to obtain more market power? Or are they using mergers to say, “We’re doing the right thing for the environment”?
So far, I would say the former, but the cases are rather seldom. As I mentioned before, there was a merger in 2019 that came under ministerial review, which we advised the ministry of economics on as well. After a substantial assessment, we concluded that the merger would not have any substantial positive impact on the development of new green products. Besides, the Federal Cartel Office concluded that this merger would lead to an adverse effect on competition and that considering efficiencies within the current merger control framework, there were no benefits for consumers. Yet, the economics minister argued that, when weighing the adverse effect on competition against the positive effect of reducing carbon dioxide emissions, there is an overall benefit for society, and therefore, the merger was granted ministerial approval.
We talked to a number of market participants and experts in the market, trying to understand what kind of positive effects this merger may have on consumers and the economy as a whole, and we realized that they were very, very small, if at all existent. Therefore, we think it was a case of greenwashing.
Q: So basically, in countries that are serious about the environment, like Germany, the corporate sector sees it as an opportunity to get more market power.
As I said, the cases are rather seldom, yet. But so far: yes, or to be more precise, more market power or the opportunity to cooperate on prices or agree not to drive innovation, for example, which slows down the progress of sustainability.
Q: You mentioned that you have a section on concentration rates in your biennial report. Can you elaborate?
We were founded in the 1970s by a liberal left-wing government to prevent market-dominant companies—a classic ordoliberal position. This was in the era of the so-called Deutschland AG, where banks were holding stakes in all major German companies, and it was one of our tasks to look at the impact of the 100 biggest companies. In this case, the links between companies also had political significance.
However, our monitoring duties sort of changed within the last few years. First, the good news is that the impact of the biggest companies in Germany is actually declining year by year. We have less and less the traditional problem of links between big German companies, coming along with political influence. Therefore, we differentiated our approach and are now looking at how markups develop and if there are any correlations. Six years ago, we started to have comprehensive analyses on the issue of common-ownership, i. e. indirect horizontal links involving large (foreign) investment corporations. And we found out that this might become a problem as well, because BlackRock and companies like it are usually invested not only in one, but in multiple companies, for example, in the car manufacturing sector, which leads to adverse effects on competition. So we had a very, very comprehensive investigation into that. But so far, the influence of BlackRock and Co. is not that problematic—in Germany, at least.
Q: You said the reason you initially did these concentration rates reports had to do with concerns about how bigness in the business world may potentially be translated to political power. Did you stop doing it, or are you less concerned?
No, we differentiated it. We realized that it is difficult to assess the risks for competition if we just look at the 100 biggest companies located in Germany. But with new problems like common ownership and the associated influence of big financial investors, the real problems may be hidden because BlackRock is not part of the 100 biggest companies located in Germany.
Generally speaking, our statutory mandate is to only look at the German market, so this is a very German view. We are not looking at the European level or world level. We do not use the classical competition law approach, trying to define a geographic market, and assess whether it is a national market or a European market, etc. We looked just at the 100 biggest companies, how big they are in terms of value-added, what their turnover is, and how many people work for them. It is a very differentiated system we started with, but we realized that this might not be sufficient to cover the new problems we are facing, like common ownership and rising markups.
For some time, we have also started looking at the concentration rates in specific markets. Here, we are only observing problematic developments in individual sub-markets, such as mineral oil processing. This also applies to the markets that we take a closer look at in our sector reports every two years when we are not writing our main report: This is about the former monopoly markets of telecommunications, energy, postal services, and railways. Unfortunately, we are observing increasing concentration rates in those markets, even though we have extensive regulations there.
But, as I said, in general, we didn’t ring the alarm bell because we couldn’t say that high concentration rates or high markups are an overall problem in Germany, contrary to the US, where, as far as I understand the American situations, you have a lot of concentration and markup problems in various markets. My theory would be that lax competition law standards in the US might have had an impact on that, because if we compare the application of competition law in the US and in Europe, I think we have different standards. The American standard has been very lenient over the past 50 years.
Q: When Germany set up the Monopolies Commission in the 1970s, the US went in the opposite direction and shifted focused toward consumer welfare rather than political influence. Looking back at the last 50 years of this ordoliberal approach to antitrust, what do you think are the lessons that you can offer us on incorporating the question of political power into antitrust?
That is a very big question. I would rather say that by applying antitrust law in a strict manner, reducing political impact comes as an additional benefit. I would not say that the approach in Germany is directly trying to reduce the political influence, yet we were rather trying to advocate the strict application of competition law to open markets. In the 1970s, we had high concentration rates and a situation in which companies were very influential, and we had really big cartels that had an anticompetitive approach. The idea was to increase competition because open markets benefit consumers and, as an extra benefit, reduce the political influence of the big companies.
As I said, our task includes looking at the four network markets that have been liberalized in Germany and in Europe: telecoms, postal services, railway transport, and energy. If you look at the energy market, for example, one of the biggest mistakes in German energy policy—which has dramatic negative effects at the moment—is that [nearly] 20 years ago, we allowed the merger of E.on-Ruhrgas. That was also the result of ministerial approval. The Monopolies Commission wrote a long report arguing that these two large companies in the gas sector should not be allowed to merge because we could not see any benefits—there were no benefits for consumers and no benefits for the safety or the security of energy supply. What we can see now is that we need more competition in the gas sector. Fifteen years ago, for example, we said we need LNG terminals, not because we anticipated what Putin would do one day, but because there is no competition if you rely on one energy source and one supplier. I think this is a striking example.
Q: So you are saying there’s a connection between Germany’s current reliance on Gazprom and lax antitrust enforcement?
That is absolutely right. A lot of wrong decisions were added within those 20 years, but if we had LNG terminals for competition’s sake, we would be in a much better situation. If we had various competitors in the gas sector, we would have a different situation now. The Monopolies Commission generally does not engage in international policy, and we do not know what will happen next. But in any case, this is an example that if we had more competition in that area, and if we had different decisions being taken, we would have LNG terminals now and would not be dependent on just one supplier in such a horrible way.
Q: How do you view the Digital Markets Act? Is this a breakthrough when it comes to Big Tech? If yes, at what point are we going to see real structural remedies or a real change of behavior from big tech companies in Europe?
That is a very good question. First of all, I would say that for me, at least, the regulation of digital markets is completely in line with the idea that we have to have competition to reduce the market power of companies. We have no market in which this is as obvious as in the digital market, in which we have just four or five large companies that have a high level of market or cross-market power.
Similarly, for example, we are trying to enhance competition in the postal services sector, in which we have just one giant German company, Deutsche Post AG, and it’s very difficult to convince politicians to foster competition in this sector because they cannot see the power of the market-dominant company.
But once you are addressing digital markets, I have the impression that it is much easier to convince people that we need to have some kind of regulation because we do not only have a market problem here, but there might also be political problems and problems for society as a whole besides the market problem.
I definitely think that there is a fear of the political influence of big companies, and it is completely justified. The twin regulations of the Digital Markets Act (DMA) and the Digital Services Act (DSA), to my mind, are addressing real big issues. This is not the fruit market or the beer market. It is much more sensitive.
Hopefully, the whole DMA will at least help to foster competition in adjacent markets. I am very skeptical that we will have a new European Google; we will not have a new European Amazon. I think we pretty much have “the winner-take-all” markets in the core digital markets. I am also skeptical that instruments like interoperability and data access, which are already embedded in the DMA, will lead to significant structural changes within the core markets. I think and am confident that the benefits would rather be in adjacent markets, to give companies like Spotify, for example, a chance. On that, I am much more optimistic that instruments like the DMA might be of help.
Q: So, to be clear, you are not very optimistic that interoperability, as it is in the DMA at least, will bring competition in search, social networks, or operating systems.
No. In our DMA report, we are rather skeptical. The current version of the DMA creates an asymmetrical obligation for interoperability in the social networking market and the instant messaging market. This means that companies that do not want to join those standards and are not market-dominant—which will probably be everything that is not WhatsApp—do not have to follow the interoperability obligations. Therefore, some companies will be part of this interoperability system, and some companies will not be part of it.
We are very skeptical about symmetrical interoperability obligations. Asymmetrical obligations are less dangerous, so to say, but of course, we do not know at this point in time whether they have positive effects. We were talking to companies as well, and most of them are not in favor of any obligations like that because they fear that those interoperability standards will become the market standard and the market standard will be detrimental to their competitive position.
However, I have to admit that within the Monopolies Commission, we do not all share the same optimism or pessimism. We can live with such asymmetrical interoperability obligation, but we are skeptical that this will be the breakthrough for competition. My position is that this is the best we have so far. If in other regions of the world there are better ideas, we are happy to adopt them if they work. But I cannot think of better instruments than the ones we have in the DMA right now, even though we are skeptical about some aspects of it.
For example, the DMA has no efficiency defense. We are quite skeptical on that point because, once we see cases in which we have set convincing efficiency defense reasons, the law would have to be changed. What the law basically says is that the legislature knows these are all bad cases and this will never change, not within the next ten years—we rather doubt that the legislator knows what kind of services will pop up over the next years and whether they will be good or bad for competition and for consumers.
Hence, we propose more flexibility within the framework. But the Commission was acting quickly and was not open to compromise. The legislative process was extremely fast. I was impressed and surprised by how fast it was. I think they feared that, once you open everything up, soft compromises are made.
So now we have to see how the new rules work. Overall, the approach goes in the right direction.
Q: You mentioned the idea of consumer and consumer welfare several times during this conversation. In the US, there’s a new spirit in antitrust that essentially says (to quote Luigi Zingales) that the consumer welfare standard is dead. Do you see the consumer welfare standard in Europe as integral to what you are doing, or do you also see growing resistance to that in Europe as well?
I would not say the consumer welfare standard is dead, yet it is still relevant. If you consult law books or consider Article 101 [of the Treaty on the Functioning of the European Union], consumer interest is a justification parameter. So I think specifically from a legal perspective, it will always be relevant because we will never change this piece of legislation.
I would say that the question is what theoretical concepts you will put into this bucket named consumer welfare standard. For example, if you look at sustainability, can we also look at benefits to consumers who are not active in the relevant market? Can we consider the benefits for future consumers? In any case, I do not think that the relevance of consumer welfare is diminishing in Europe.